Dow Retreats From Exuberance, King Digital and PetSmart Are the Talk of the Town

McDonald's and its hefty 3.2% dividend can't lure investors in the stock market today.

John Divine
John Divine
Jul 7, 2014 at 6:30PM

Who doesn't love a nice, long Fourth of July weekend? Typified by fireworks, friends, and food, it's a great way to kick of the summer and -- let's not forget -- celebrate America's birthday. Even the stock market seemed to be joining in on the fun last week as the Dow Jones Industrial Average (DJINDICES:^DJI) closed above the 17,000 mark for the first time, finishing at record highs. Driving stocks higher was the labor market, as the U.S. added 288,000 jobs in the month of June. Alas, the exuberant feeling of yesterweek was forgotten on Monday, as the Dow shed 44 points, or 0.3%, to end at 17,024.

Even though steady dividend-paying stocks fared better than their peers on Monday, McDonald's (NYSE:MCD), which shells out a 3.2% dividend, saw its shares fall 0.8% today. Investors have been understandably peeved in recent years as the fast food chain struggled to grow U.S. same-store sales and introduced its most notable product flop in recent memory, Mighty Wings. McDonald's appears to have learned its lesson, increasing marketing attention on a product already on its menu. It's also testing out ordering through mobile apps in select locations to see if other channels can boost same-store sales.

King Digital Entertainment (UNKNOWN:KING.DL) knows a thing or two about mobile apps, as the creator of the colorful puzzle game Candy Crush Saga. Shares of the company -- which opened more than 5% higher today after an upgrade from Piper Jaffray -- managed to turn south in a hurry, finishing with 5.2% losses. 10% intraday swings like this are rare, but with both institutional and individual investors alike prone to hold a badly performing stock until it breaks even, when King Digital finally regained its March IPO price today the stock sold off steadily into the afternoon. Though King Digital has been profitable for years, it doesn't pay a dividend and its allure as an investment is purely growth-oriented.

Puppies go (in) public all the time. Image source: PetSmart

PetSmart (UNKNOWN:PETM.DL) investors face very different prospects than those in the Candy Crush maker. While the contrasts between the two businesses couldn't be clearer to begin with, PetSmart stock dishes out a 1.4% dividend to King Digital's 0%, and PetSmart investors are pushing for the company to actually go private months after the app-maker went public. This recent push drove shares 12.5% higher on Thursday and 2.5% higher today, as two institutional investors who own nearly 20% of the retailer have now suggested that the board of directors seek a private equity sale, which they feel could fetch a premium to the current stock price. PetSmart itself deflected on the issue, vowing to return more capital to shareholders, something that its 18% dividend payout ratio suggests should be possible.